Stocks’ Details
 

Incitec Pivot Limited

Completion of Institutional Placement: Incitec Pivot Limited (ASX: IPL) is engaged in the manufacturing and distribution of industrial explosives, industrial chemicals and fertilisers. The market capitalisation of the company stood at $3.53 Bn as on 12^th May 2020. IPL has recently completed its fully underwritten institutional placement and raised A$600 million. The company has experienced significant interest from domestic and offshore institutional and professional investors. In addition, the company is likely to raise up to A$75 million via offering a share purchase plan. IPL would utilise these proceeds for the repayment of drawn balances of syndicated facilities, with any remaining amount held as cash on deposit.


Key Dates for SPP (Source: Company Reports)

Clear Strategy to Provide Decent Value to Shareholders: The company has a certain strategy to enhance shareholder value via leveraging strategically located assets, premium technology solutions as well as manufacturing excellence.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company possesses a healthy balance sheet with improved liquidity. It is committed to maintain investment-grade credit metrics. Current ratio of the company stood at 0.91x in 1H FY20, reflecting YoY growth of 56.3%. This implies that IPL has improved its liquidity position to pay its short-term obligations. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Orica Ltd (ASX: ORI), Nufarm Ltd (ASX: NUF) and Aurizon Holdings Ltd (ASX: AZJ). Hence, in light of the improved liquidity position, recent capital raising and valuation, we give a “Buy” recommendation on the stock at the current market price of $2.050 per share, down by 6.393% on 12^th May 2020.

CIMIC Group Limited

New Contracts to Support Revenue Growth: CIMIC Group Limited (ASX: CIM) provides construction, mining and operation and maintenance services to the infrastructure. The market capitalisation of the company stood at $7.39 Bn as on 12^th May 2020. During the quarter CIMIC group secured numerous contracts, which include contract won by UGL to provide maintenance, shutdown, and project services for its clients in the mining sector. During Q1 FY20, the company reported revenue amounting to $3.3 billion against $3.4 billion of Q1 FY19. NPAT for the period stood at $166 million. It reported operating profit, PBT and NPAT margins of 8.4%, 6.9% and 5.0%, respectively.


Key Financial Metrics (Source: Company Reports)

Expected Future Projects: The company stated that approx. $90 billion of tenders were likely to be bid and/or awarded for the remainder of 2020 as at 31^st March 2020. The company also anticipates around $400 billion of projects to come to the market in 2021 and beyond.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 44.1% and 14.4% in FY19 against the industry median of 12.7% and 5.8%, respectively. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Downer EDI Ltd (ASX: DOW), Boral Ltd (ASX: BLD), Fletcher Building Ltd (ASX: FBU), etc. Therefore, considering the numerous contracts secured by the group, performance in Q1FY20 and improvement in key margins, we give a “Buy” recommendation on the stock at the current market price of $22.090 per share, down by 4.579% on 12^th May 2020.

Pact Group Holdings Ltd

Improved Margins During 1HFY20: Pact Group Holdings Ltd (ASX: PGH) is involved in the manufacturing of rigid plastics packaging, metals packaging and related products. The market capitalisation of the company stood at $639.83 Mn as on 12^th May 2020. The company recently announced that Credit Suisse Holdings (Australia) Limited on behalf of Credit Suisse Group AG and its affiliates has ceased to become a substantial holder on 17^th April 2020. During 1HFY20, the company experienced improved margins via improved recovery of prior period pricing lags along with strong cost control and overhead management. Revenue for the period amounted to $886 million, reflecting a fall of 3%. NPAT for the half-year stood at $32.7 million. 


Financial Performance for 1H FY20 (Source: Company Reports)

Future Focus: The company would be focused on improving its overall competitiveness with the help of organisational structure, operating efficiency, and the performance of its equipment. The company is exceptionally positioned to lead the packaging industry through the transition to the circular economy.

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Net margin of PGH stood at 3.9% in 1H FY20, indicating a YoY growth of 38.8%. This reflects that the company has improved its capability to convert its top line into the bottom line. The stock of PGH is trading below its 52-week low-high average. We have valued the stock using P/CF multiple based illustrative relative valuation methodand arrived at a target price with an upside of lower double-digit (in percentage terms). Thus, considering the current trading levels and decent outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.840 per share, down by 1.075% on 12^th May 2020.

People Infrastructure Ltd

Completion of Placement: People Infrastructure Ltd (ASX: PPE) is engaged in workforce management and staffing solutions. The market capitalisation of the company stood at $184.53 Mn as on 12^th May 2020. Recently, the company has successfully completed its placement to raise $17.6 million. The company will raise an additional $5 million through a fully underwritten share purchase plan. The company would utilise these proceeds to finance future acquisition opportunities, which would emerge because of the current volatile economic conditions from COVID-19. The below picture gives an overview of the financial performance of 1H FY20:


Key Metrics (Source: Company Reports)

Well-Positioned to Weather Current Environment: The company is well-placed to navigate the current environment caused by COVID-19. The company possesses extra capital, which provides the opportunity to make further attractive investments and acquisitions in subdued market conditions.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of PPE has provided a decent return of 46.31% in the last one month. The current ratio of the company stood at 1.14x in 1H FY20, reflecting YoY growth of 0.2%. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of lower double-digit (in percentage terms). Hence, considering improved liquidity position, and strong growth in earning during 1H FY20, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.120 per share, down by 2.752% on 12^th May 2020.
 
 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.